The euro and its impact on leasing contracts

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When the euro was introduced, companies were regularly concerned about leasing contracts contracts. These contracts, which run for several years at a time, seemed particularly exposed to currency turbulence.

Twenty years on, these questions are still relevant when analysing the legal mechanisms applicable to monetary upheavals. They merit close examination.

European legal framework

Two European regulations structured the introduction of the euro:

• EC Regulation 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro
• EC Regulation 974/98 of 3 May 1998 on the introduction of the euro

These texts settle a number of key issues, in particular contractual continuity during the transition to the new monetary instruments.

The fundamental principle: continuity of contracts

Article 3 of the 1997 regulations clearly states that ". the introduction of the euro does not have the effect of modifying the terms of a legal instrument or of releasing or dispensing with its performance" .

This text confirms a cardinal principle of classical monetary law: a change of currency is an act of sovereignty that does not affect the validity of contractual commitments.

In practice? An equipment leasing contract signed in French francs continued to produce its effects without either party being able to invoke the new currency to avoid its effects.

Conversion methods and technical rules

To ensure a smooth transition, the European legislator has established precise rules:

1. Conversion rates: irrevocably fixed, with six significant figures
2. The ban on rounding or truncation when making conversions
3. A ban on the use of inverse rates calculated
4. A system of rounding to the nearest cent

Article 5 of the 1997 regulations states: " Amounts to be paid or accounted for after conversion into euros are rounded up or down to the nearest cent." .

The transitional period: a temporary dual system

The 1998 regulations created a transitional period from 1 January 1999 to 31 December 2001. During this phase:

• National currencies became legal subdivisions of the euro
• The "ni-ni" principle prevailed: neither obligation nor prohibition to use the euro
• The parties could choose the currency for their new contracts

This flexibility has facilitated the gradual adaptation to the new monetary instruments.

Impact on existing leasing contracts

For leasing contracts already in place, the currency changeover raised three major issues:

1. Modification of contractual conditions

Automatic modification was excluded. As Professor Delebecque explains in the document analysed, ". the changeover to the euro does not justify the termination or lapse of the contract insofar as it does not fundamentally alter the balance of the contract" .

The theory of unforeseeability was not intended to apply, as the introduction of the euro was largely foreseeable.

2. Treatment of interest rates

For fixed rates: no impact on the nominal rate.

For variable rates: a more complex issue due to the scheduled disappearance of benchmark indices (PIBOR, national LIBOR). The solution adopted was to use the economically closest index.

3. Rent conversion

The rents had to be converted at the official rates, applying the prescribed rounding rules. Any minor discrepancy resulting from this conversion could not justify a challenge.

New contracts after 1 January 1999

For contracts concluded after that date, the parties could:

• Free to choose the euro as the contract currency
• Insert clauses allowing automatic invoicing in euros or national currency
• Explicit provision for the changeover to the euro for contracts concluded in 1997-1998

Frequently asked practical questions

Contracts governed by foreign law

For contracts with a substantial link to the European Union: application of the principle of continuity despite the applicable foreign law (application as mandatory rules).

For contracts with no link to the EU: theoretical risk of challenge, but unlikely in practice.

Double price display

During the transitional period, leasing institutions generally adopted a dual display of rents (national currency and euro) to facilitate the transition without imposing the use of the euro.

Model contractual clauses

The question of including a specific euro clause in new contracts was examined, but deemed potentially risky and superfluous, as the European regulation already provides sufficient legal certainty.

A special clause remained relevant only for contracts subject to the law of a third country.

The international leasing contracts deserve special attention in a context of monetary change. The expertise of a specialist legal advisor can help you anticipate difficulties and organise the transition.

Our firm supports companies in their cross-border transactions and analysis of the applicable international conventions, in particular the Ottawa Convention on International Financial Leasing. Do not hesitate to contact us to review your international contracts.

Sources

• EC Regulation 1103/97 of 17 June 1997 on certain provisions relating to the introduction of the euro (OJ L 162, 19.6.1997).
• Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro (OJ L 139, 11.5.1998).
• Jurisclasseur Droit bancaire et financier, Fascicule 643 "Crédit-bail mobilier - Crédit-bail international et leasing en Europe", 16 June 2001
• Ottawa Convention of 28 May 1988 on International Financial Leasing (D. n° 95-879, 28 July 1995, JO 4 August 1995)

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